gdichaz--Terry Yin, CDG's Asia-Pacific Projects:
"If we don't get to smart cards until 3G, we failed to implement this in a timely manner."
Prospects for sales of SIM cards, already the healthiest segment of the smart card industry, seems likely to get a huge shot in the arm as the mobile telecommunications industry moves to use the cards with non-GSM cellular phones and the new third generation technology standard.
Organizations representing major mobile phone technologies in North America and the Asia-Pacific region are gravitating toward using the chip-based subscriber identity module cards, which are now are used primarily in GSM cell phones.
With mobile phone subscriber numbers expected to jump from 429 million today to 968 million worldwide by 2004, according to Boston-based Strategy Analytics Inc., smart card vendors can expect orders for hundreds of millions of cards in the next few years, generating revenues of upwards of $1 billion, says sources.
The two technologies that will migrate to smart cards for subscriber identification are called CDMA and TDMA. According to Strategy Analytics, there are about 47 million CDMA subscribers, primarily in the United States, Japan, Korea and Australia; TDMA has about 21 million subscribers, mostly in the Americas. GSM, which always has required a Subscriber Identity Module (SIM) smart card in each phone, has about 180 million subscribers, mostly in Europe and Asia. A variety of other mobile phone technologies account for the balance of mobile phone users.
The decisions by groups representing CDMA and TDMA operators reflects the rapid shift in mobile phone technology, as operators compete furiously for customer loyalty in the fast-growing cell phone market. With major technology advances in the works, cell phones soon will be mobile Internet terminals, capable of offering consumers everything from access to electronic mail to video clips of new movies.
These changes open up vast opportunities for all kinds of companies, from banks to merchants, to sell their products and services through mobile phones, as long as the phones offer adequate security. A smart card in the mobile phone would increase security by allowing, for instance, a bank to insert its own secret codes on a consumer's SIM card that would identify the consumer in mobile banking transactions, says Terry Yen, director of Asia/Pacific Projects for the Costa Mesa, Calif.-based CDMA Development Group, an organization of CDMA operators and technology providers.
CDMA phones now carry subscriber information in a chip in the handset, and identifying data may be sent to a new handset through the airwaves or inserted by phone dealers, a decentralized procedure that invites fraud. While CDMA has fraud-management systems to prevent individuals from stealing phone service, Yen says, "now you're looking to make sure people don't trade stocks in your name." By adding a place for a SIM card in the handset, operators can put identifying codes on the chip card and send it to the consumer, avoiding the risks of sending confidential data via the airwaves or allowing distributors to insert the secret codes.
Another advantage of a SIM card is allowing CDMA phone subscribers to use their phones in areas dominated by GSM. "Realistically, there is no CDMA in Europe, no CDMA in Africa," Yen says. With a SIM card in the phone, the CDMA operator can include the data needed for the phone user to access GSM operators, once operators negotiate roaming agreements.
Finally, Yen says, adding a SIM card would create a common hardware platform with GSM, encouraging software developers to create new mobile phone applications by making those applications usable over more phones.
Yen says some CDMA operators have discussed adding a smart card in the past, but lacked the buying power to interest handset manufacturers in modifying their designs. That changed, he says, when China Unicom, the nation's second-largest telecommunications operator, announced plans for a major rollout of CDMA phones with smart cards. Unicom officials say they plan to have the capacity for 10 million mobile phone subscribers in 250 cities by the end of this year, and to be able to serve 40 million customers by the end of 2003.
"Unicom has the buying power and has attracted the interest of a lot of handset providers," Yen says.
Meanwhile, CDMA and other mobile phone technologies are working on what are called third-generation mobile phones that will have much greater bandwidth than today's phones, allowing consumers to access a wider variety of Internet and other services via their phones. The first third-generation phones are expected to appear first in Japan in 2001, and Yen says CDMA operators will incorporate smart cards in those so-called 3G phones. But, he adds, many operators will add smart cards to their current, or 2G, phones. "For us, smart cards is a 2G thing," he says. "If we don't get to smart cards until 3G, we failed to implement this in a timely manner."
As for TDMA, its industry organization, the Universal Wireless Communications Consortium, announced in November plans to move toward common handsets and global interoperability with GSM operators. "GSM and TDMA are a done deal," says Minh Le, director of field marketing, mobile communications solutions, for the North American unit of Montrouge, France and New York City-based Schlumberger Ltd. She says Schlumberger already is working on a SIM card that would identify consumers to both TDMA and GSM operators.
Other smart card vendors also are optimistic, if not absolutely certain, that third-generation mobile phones will require chip cards. "It is clear in our minds that the 3G phones will all have a SIM card," says David Levy, president of the Louveciennes, France-based Smart Cards and Terminals Division of Group Bull.
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